Reducing VAT is a multi-target policy with a positive impact on the economy

Economic expert Dinh Trong Thinh

Dear Sir, Deputy Prime Minister Le Minh Khai has just agreed with the proposal of the Ministry of Finance to continue applying the policy of reducing VAT by 2% in the first half of 2024 for some types of goods. Could you please give your assessment of this proposal from the Ministry of Finance?

As we know, the world situation is very complicated. Inflation has decreased but not as expected, interest rates are high, and the recovery of the world economy is still very slow. This has affected import-export and Vietnam's economic activities, accordingly, import-export activities have many difficulties because international trade is declining compared to previous years.

In 2023, our economy will face many difficulties due to a significant decrease in export orders, while domestic consumption will not grow as expected, leading to many difficulties in production and business. Therefore, the proposal to continue applying the policy of reducing VAT from 10% to 8% in the first six months of 2024 is a necessary solution to both stimulate domestic consumption demand, lower product prices, and reduce costs. consumer price index while supporting businesses to continue the process of recovery and better development. In the context of the economy as well as businesses' production and business being extremely difficult today, we believe that the Ministry of Finance's proposal to continue reducing VAT starting from January 1, 2024, after the end of the 2023 VAT reduction policy, which is very reasonable.

In your opinion, when this policy is implemented in practice, how will it impact businesses, people and the economy?

As I said, reducing VAT will first have a positive impact on consumers, the price of goods on the market will decrease, the impact on the overall price level will decrease by about 1.7%.

Besides consumers, production forces also benefit from both ends. Accordingly, input prices of raw materials for production will decrease, capital costs will also decrease, thereby reducing production costs, businesses will have more profits or more resources to reduce selling prices as well as carry out other promoting activities. These are moves that can boost consumption. If products are produced and turned around quickly, businesses will benefit greatly. Obviously, reducing taxes will have an impact on reducing budget revenue, but we have been able to stimulate consumption demand as well as help businesses recover better through reducing input costs, thereby helping businesses benefit. better profits. Equally important, price cuts can help control the consumer price index. For example, in August and September, when preparing to enter the new school year, the price of goods on the market decreased, helping the consumer price index decrease, thereby helping to control inflation in the best way. That basis creates stability for the macroeconomy and creates conditions for economic growth. Thus, it can be said that reducing VAT is a multi-target policy, with a positive impact on the economy in general.

Tax reduction will have a certain impact on budget revenue. According to you, what solutions does the Finance sector need to make up for revenue shortfalls and ensure budget revenues meet estimates?

The first and most important thing is to promote digitalization in the financial sector to reduce time, costs, and effort for management and supervision. This is the most important solution to help the Finance and Tax sectors collect budget simply, quickly and accurately. At the same time, we must better implement the process of digitizing the financial sector, including the tax sector, specifically applying electronic invoices. Electronic invoices connect businesses' revenues and expenditures with tax authorities, thereby making business operations transparent, clear, and easy to check and control. In addition, promoting digital transformation also minimizes direct contact between tax and customs ministries and businesses.

Along with digitalization, I also think that Tax and Customs agencies need to take measures to support businesses so they can manage their finances better, which is a higher goal of economic security. That is, how can management agencies support businesses to better manage their finances, to have revenue and profits? When providing such support to businesses, the management agency will also understand the financial situation of the business, thereby preventing tax evasion and avoidance. These are things the Finance industry needs to pay attention to in the coming time to support businesses, thereby nurturing and strengthening revenue sources for the state budget.

Thank you Sir!